The opinion of the court was delivered by: Naomi Reice Buchwald United States District Judge

MEMORANDUM AND ORDER

I. Introduction

Pending before the Court are two motions. Charles Boyce and Nisha Menon, individually and on behalf of their minor children (the "plaintiffs"), move for entry of a default judgment pursuant to Federal Rule of Civil Procedure 55(b)(2). E.A. Technologies, Inc. (the "defendant") moves to set aside the entry of default against it pursuant to Federal Rule of Civil Procedure 55(c). For the reasons stated below, we deny plaintiffs' motion and grant defendant's motion.

This action is a derivative contest to litigation between Charles Boyce ("Boyce"), one of the plaintiffs, and Edward Willner ("Willner"), the president of defendant, that was initiated in state court and involved at its outset a dispute over various agreements governing the disposition of Boyce's ownership interest in defendant and Boyce's employment by and consulting for defendant (the "state court action"). See Boyce v. Willner, et al., Index No. 650210/2009 (N.Y. Sup. Ct., N.Y. Cnty.); Reisen Decl. in Support of Pls.' Mot. for Default J. ("First Reisen Decl.") Ex. F. During the state court action, it appears that defendant initially continued to pay for Boyce's healthcare insurance, which was a provision of the disputed employment and consulting agreement. See Mem. of Law in Supp. of Def.'s Mot. to Vacate Default ("Def.'s Br.") 3; Mem. of Law in Supp. of Pls.' Mot. for Default J. ("Default J. Br.") 2-3. In response to Boyce's alleged argument in the state court action that defendant's continued payment for his healthcare insurance estopped defendant from claiming that he had breached the employment and consulting agreement, defendant decided in December 2010 to stop paying for the healthcare insurance. See Def.'s Br. 3; Default J. Br. 2-3.*fn2

According to the affidavit of Ellen Bernstein, a bookkeeper employed
in defendant's office in Hauppauge, New York, on December 2, 2010, she
contacted defendant's healthcare
representative and asked him to cancel Boyce's healthcare insurance.
Bernstein Aff. in Supp. of Def.'s Mot. to Vacate Default ("Bernstein
Aff.") ¶ 6. Bernstein testifies that at some later point she was
advised by the healthcare representative that no claims had been made
under the healthcare insurance since September 1, 2010 and that he
would accordingly cancel coverage retroactively to that date in order
to secure a premium refund for defendant. Id. at ¶ 7.*fn3
Having been advised that she should provide Boyce with an
Election of COBRA Continued Coverage Form, Bernstein testifies that on
December 3, 2010 she mailed the form to Boyce and that she
subsequently received a certified mail receipt dated December 6, 2010.
Id. at ¶¶ 8-9, Exs. C-D.*fn4 Bernstein finally
testifies that she never received the completed form from Boyce, who
was not enrolled in defendant's healthcare plan pursuant to COBRA. Id.
at ¶ 10.

In their opposition to defendant's motion to set aside its default, plaintiffs contest whether this notice was timely and adequate under COBRA but do not suggest that plaintiffs did not actually receive the mailed form or that plaintiffs' counsel was only made aware of it in the wake of defendant's motion. See Pls.' Mem. of Law in Opp'n to Def.'s Mot. to Vacate Default ("Pls.' Opp'n") 11-12, 12 n. 46. It is thus troublesome that plaintiffs did not acknowledge receipt of this notice in their motion for default judgment in which they stated in language that in retrospect appears carefully chosen that "[defendant] did not provide [p]laintiffs with [any] notice under COBRA prior to its cancellation of their health care coverage." Default J. Br. 3 (emphasis added). We note that plaintiffs' failure to contest that they actually received the mailed form in their opposition to defendant's motion appears to also create a possible conflict with one of their affidavits in support of their motion for default judgment. See Menon Aff. in Supp. of Pls.' Mot. for Default J. ("Menon Aff.") ¶ 6 ("[o]n December 10, 2010 . . . [n]either my husband nor I had received any notice that our family's coverage would be terminated").

On December 10, 2010, Boyce's wife learned that defendant had cancelled Boyce's healthcare insurance that provided coverage for her and her husband as well as their children. Menon Aff. ¶ 6. Boyce's wife was informed that as a result of the retroactive cancellation, previously approved claims in excess of $10,000 for healthcare that had been provided to members of the family in October 2010 would be denied. Id. at ¶¶ 2-5, 7. While the family received healthcare insurance coverage following January 1, 2011 through Boyce's wife's employer, certain healthcare that their children would have otherwise received in December 2010 was delayed. Id. at ¶¶ 9-10, 12.

On December 10, 2010, plaintiffs' counsel contacted defendant's counsel in the state court action and Willner regarding the retroactive cancellation of Boyce's healthcare insurance, stating that if defendant failed to "resolve this matter immediately . . . we will have no choice but to seek judicial relief." First Reisen Decl. Ex. F. On December 12, 2010, defendant's counsel in the state court action, still under the apparent impression that no claims had been made under the healthcare insurance since the retroactive cancellation date, offered that defendant would change the cancellation date to December 1, 2010 and pay the premiums due for the preceding months. Id. Plaintiffs' counsel was unsatisfied with this response, see id., and on December 15, 2010, Boyce brought suit against defendant, alleging violation of the Consolidated Omnibus Budget Reconciliation Act of 1985, 29 U.S.C. §§ 1161 et seq., as amended ("COBRA"). That same day, plaintiffs' counsel apparently emailed the original complaint to defendant's counsel in the state court action, requesting him to accept service, which request was not granted, though whether by a lack of response or a negative response is unclear. Reisen Decl. in Support of Pls.' Opp'n to Def.'s Mot. to Vacate Default ("Second Reisen Decl.") Ex. E; Pls.' Opp'n 4.

According to an affidavit executed by process server Nelson Acevedo ("Acevedo") on January 4, 2011 and filed on January 5, 2011 ("Acevedo Aff. #1"), Boyce served defendant with the original complaint on December 17, 2010 at 150 Motor Parkway, Suite 201, Hauppauge, New York 11788 by delivering his papers there to "Ellen Beinstein," who the affidavit identifies as an "authorized agent" of defendant. On March 7, 2011, Boyce amended the original complaint, adding his wife, Nisha Menon, and their minor children as plaintiffs. According to an affidavit executed by Acevedo on March 10, 2011 and filed on March 15, 2011 ("Acevedo Aff. #2"), plaintiffs served defendant with their amended complaint on March 8, 2011 at 150 Motor Parkway, Suite 201, Hauppauge, New York 11788 by delivering their papers there to "Ellen Beinstein," who the affidavit again identifies as an "authorized agent" of defendant.*fn5 In their amended complaint, plaintiffs assert, "[defendant] intentionally and willfully violated COBRA by failing to inform and give timely and accurate notice to [p]laintiffs regarding continued coverage under COBRA after their health insurance was terminated." Am. Compl. ¶ 20. On April 21, 2011, the Clerk of Court entered a default against defendant, which had as of that date neither answered nor otherwise moved with respect to the amended complaint. On April 26, 2011, plaintiffs submitted a deficient application for entry of a default judgment. In a telephone conversation on May 12, 2011, this Court's chambers advised plaintiffs' counsel of the deficiencies, which plaintiffs' counsel promised to correct.

Following a prompting inquiry from this Court's chambers on June 7,
2011, on June 17, 2011, plaintiffs filed their pending motion for
default judgment, seeking $301,400 in penalties and $19,998.14 in
attorney's fees and costs under COBRA. Default J. Br. 6, 8.*fn6
In particular, plaintiffs premised the award of penalties
that they sought on the argument that "[t]he penalty period commences
on the last day the employer could have legally provided the COBRA
notice and runs until the violation ends or the end of [eighteen
months]" and that "[i]n this case the penalty period extends from the
date notice was late through the full eighteen months." Id. at 6.
Though only seven months had elapsed between December 2010, the
cancellation date, and June 2011 and only ten months between September
2010, the retroactive cancellation date, and June 2011, two time
periods on which plaintiffs might have been understood to premise
their claim,
plaintiffs did not explain how they arrived at eighteen months in
their calculation of penalties.

On July 15, 2011, defendant's counsel filed a notice of appearance. Thereafter, on July 21, 2011, defendant's counsel indicated over the telephone in response to an inquiry from this Court's chambers that defendant was intending to file a motion to vacate the entry of default against it. On August 11, 2011, this Court wrote a letter to defendant's counsel on which plaintiffs' counsel was copied, indicating that defendant would be afforded a final opportunity to file a substantive motion within the next week. On August 23, 2011, defendant's counsel somewhat tardily informed this Court's chambers over the telephone that he was preparing such a filing. At our direction, on August 31, 2011, defendant submitted a pre-motion letter in which it argued that the entry of default against it should be set aside because (i) plaintiffs had improperly served defendant and (ii) a meritorious defense existed to the amended complaint. In compliance with our subsequent direction, on September 22, 2011, defendant finally filed the pending motion to set aside its default.

III. ...

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